Thursday, November 17, 2011

View: Read the last paragraph... It is foolish and naive to think that having Air Asia X give up the routes to London and Paris that MAS will be able to reduce costs. Before asking the partnership to make sacrifices, please get your own fundamentals/matters in order.

PETALING JAYA: Investors and analysts are basically growing tired, having waited for nearly three months now for the new team at Malaysia Airlines (MAS) to announce some definitive execution plans to turn the ailing airline around.In a report, Maybank Investment Bank said: “The first impression we get is that the new management is busy learning the ropes and dealing with internal matters first before unveiling their grand plan.''The house expects MAS to report a net loss of RM242mil for the third quarter. It said the fourth quarter, which is traditionally a good period for airlines, would be equally challenging for the national carrier. “It has been more than three months since the announcement of the MAS-AirAsia tie-up. Unfortunately, not much progress has been made in terms of operational matters.''

The research house said: “We have lowered our earnings forecast to adjust for higher fuel prices, lower yields and lower capacity deployment. We are optimistic on the tie-up as it brings forth exciting opportunities with synergy potential in the billions, but execution plans are iffy and very slow.''“Against this backdrop, we have lowered our earnings forecast and downgraded MAS to a “hold” (from “buy”) with a target price of RM1.55 per share (from RM2.70) pegged to 5.6 times 2012-adjusted enterprise value/earnings before interest, taxes, depreciation and amortisation on par with global peers,'' it said.

Malaysian Airlines aircraft parked on a tarmac at Kuala Lumpur International Airport in Sepang outside Kuala Lumpur.(File picture) - EPA It estimates that the third-quarter core net loss to be RM242mil after adjusting for FRS139 derivative mark-to-market, which is non-cash. The target is largely based on a 45% year-on-year rise in fuel price.“We forecast the third quarter and the early part of 2012 to be loss-making after imputing for a higher jet fuel price of US$120 per barrel (from US$110 per barrel) and softer yield environment. MAS' cost structure is not nimble enough to deal with the current market environment. It should be in better shape in 2H12 when it removes most of its old aircraft from the fleet, ” according to the report.

It added that both airlines can save huge sums (RM200mil-RM300mil per year each) by eliminating irrational competition and reducing wastages. There is also potential yield enhancement stemming from better market supply demand relationship.MAS has many routes in its network that are thin and have no potential to make profits (irregular non-daily flights, using big aircraft for small routes). Most of these routes were legacy in nature and served a different purpose in the yesteryears. Since the core focus was to revert back to profitability, MAS must be decisive and cull these routes immediately, the report said.

The report suggested that there were many areas where MAS and AirAsia could work to save cost.“We believe both airlines should be smart and combine powers against the common enemy. For example, AirAsia X should stop its flights to Europe (London, Paris) and let MAS fight the battle alone against the Middle Eastern airlines (Emirates, Etihad, Qatar, Gulf) on these routes. Similarly, MAS should also get out from routes where there is no business travel or low yielding routes,'' it said.

Wednesday, November 9, 2011

PETALING JAYA: Malaysia Airlines (MAS), which will be relocating its headquarters (HQ) from Subang to KL International Airport (KLIA) in February next year, will cut several routes including those to Dubai, Johannesburg, Buenos Aires and Cape Town, in a bid to reduce costs, sources said.The sources added that MAS would no longer rely on Kota Kinabalu as a hub and would cut flights out of the Sabah capital to destinations such as Haneda, Seoul and Osaka.In February, MAS would stop flying to Johannesburg, Cape Town and Buenos Aires, they said. As for the pullout from the Dubai sector, this will be done gradually, first with the reduction of weekly flights and those via Karachi and Damman.“These are seen as critical routes that do not bring in the yields or are highly competitive, and the best way to bring down costs is to axe the unprofitable routes first,'' said a source.The sources claimed that the airline might add Abu Dhabi as a destination in place of Dubai, a route served by Emirates several times weekly, but whether it was a wise move would remain to be seen as Abu Dhabi is an equally competitive route.The sources added that choosing Kota Kinabalu as a hub was not a strategic move in the first place and now the airline had to reverse the decision. This is the second time that MAS has abandoned the idea of using Kota Kinabalu as a hub. The first attempt was in 2003.MAS is currently conducting a review of its entire route network and sources claimed that there would be more route cuts. However, new destinations and frequencies will be added to those that bring in the yields.“They should focus on areas that gives them good yields instead of trying to fly to destinations just for the sake of having linkages. Gone are the days when connectivity was a must, now the focus should be on making money rather than community service,'' said a source.On the move to KLIA, which will be its second HQ shift in a decade, it is intended to consolidate its administrative operations in one location rather than maintain several. Currently, MAS operates from five places three at Subang and two at KLIA. The move will reduce the number of locations to three two in Subang and one in KLIA.The new administration and headquarters will be located at the South Support Zone at KLIA. However, the Firefly turboprop operations, engineering and maintenance (E&M) as well as the Malaysia Airlines Academy will remain at Subang. The E&M division needs to stay at Subang because it has three hangars in that location and it would cost too much to relocate them.“The move may be good for the airline as it wants to consolidate its operations and bring down costs, but it will be a costly affair for employees, whose travelling cost will rise along with their travelling time.“The last shift was from Jalan Sultan Ismail to Subang. The question is, with the advent of technology, is there really a need to consolidate the operations to KLIA/LCCT... unless there is a plan to sell the land in Subang or even develop it?'' asked a source.According to its annual report, MAS has 32 office and workshop buildings at Subang which covers 4.6 million sq feet and the net book value of the assets is RM233mil.

Monday, October 24, 2011

View: I'm surprised to see this discrepancy. Either the estimate of total fare revenue is too high, or Rapid Penang really has serious issues on collecting fare from passengers.

Source: TheStar.com.my

GEORGE TOWN: Discrepancies in fare collection, unsatisfactory depots and hubs and delayed infrastructure projects are among the weaknesses suffered by integrated bus service Rapid Penang.

A total of RM1.14mil in fare discrepancies were recorded from Rapid Penang's establishment in February 2007 to 2010, the Auditor-General's Report 2010 revealed.

The report listed several weaknesses the company suffered, which included unsatisfactory depots and bus hubs, not well-managed cleaning contracts for buses and Rapid Penang premises, delayed infrastructure projects and not fully utilised hostels.

It also reported the bus company had incurred loses before tax for both 2008 (RM7.67mil) and 2009 (RM10.68mil). No figure was quoted for 2010.

Monday, September 19, 2011

KUALA LUMPUR: Rangkaian Pengangkutan Integrasi Deras Sdn Bhd (RapidKL), a public transportation provider, expects the addition of 150 city buses to its service to increase service efficiency in the Klang Valley.

Group director of bus division Datuk Hazlan Mohamed Hussain said the addition of the new buses, would increase the frequency on routes, thus reducing waiting time for passengers.

"The new buses will be of much help, especially in areas where the waiting time can be reduced," he told reporters after a ceremony hand over the buses by MAN Truck & Buses (M) Sdn Bhd (MTBM), here today.

Hazlan said with improved efficiency, the company hopes to attract more customers to use its services and this would raise revenue accordingly.

Meanwhile, the new buses, manufactured by MTBM, incorporate features for the disabled, including wheelchair ramps and a yellow coloured interior, for those who has vision problems. - BERNAMA

The research house in its report yesterday said the privatisation of MAS was not an outlandish idea and the shareholders may just warm up to the idea. More so since the analyst community had an overwhelming “sell” call on the carrier after the airline reported RM242mil in net loss for the first quarter ended March 31, 2011.

“MAS' poor performance stemmed from its lowest yields and highest cost position against its peers. Most of the root causes were legacy in nature, having inherited the oldest fleet and the ill effect of substantially under-invested in the business in the past.

“(However), there are merits to a privatisation, it provides a shelter away from further downside volatility in the share price, while the company reshapes itself up for a re-listing in the future years,'' the report said.

Think about it: Maybank IB says the privatisation of MAS is not an outlandish idea

In the past many companies have been taken private for some years and later re-appear on the local house and this is the suggestion of Maybank IB. Among those companies that have been taken private for various reasons include PLUS Expressways Bhd, United Engineers Bhd, Mox Bhd, Astro, Palmco Bhd, Bumi Armada Bhd and Maxis Bhd. Thus far, Maxis has been re-listed and Bumi Armada is making its way back on the local bourse. Even the shareholders of AirAsia was once upon a time thinking of taking the carrier private.

But some analysts do not share Maybank IB's sentiments.

“MAS had gone through a lot of transformation programmes and going private means it is admitting defeat. That is not the kind of signals it should be sending to the market. With all these GLC open day and all the work that Tengku Datuk Azmil Zahruddin is doing to reshape MAS, we should allow it to remain listed.

“Today may be tough times for the carrier, but given time and the right strategy and its recent entry into oneworld global air alliance and the fact that it is buying new aircraft, MAS should be doing better next year onwards,'' an analyst from a foreign-based research house said.

However, she said, if “you look at it from the shareholder perspective and since the share price has tanked backed to the 1990s level, it is absolutely value destruction given all the equity calls. On paper the privatisation looks good but I still do not think it is the best way for MAS.''

An aviation analyst from Singapore who requested anonymity felt that “it (MAS) is not run like a government-controlled company and if the Government wants to sell the remaining stake, it is the Government's decision. Even if the Government feels it should sell, it may need to wait for market conditions to be right for such a sale.''

Maybank IB in its reports felt that the shareholders of MAS might warm up to the idea of a privatisation.

It said the principle shareholders of MAS were Khazanah Nasional Bhd (69%) and Employees Provident Fund (EPF) (11%) and both had acquired MAS at a substantially higher price.

Since MAS' stock performance has been disappointing and considering potential headwinds ahead, its parent Khazanah may consider privatising MAS as the stock is trading at its lowest historical price and valued at only 1.4x book. At the current share price, Khazanah needs to pay less than RM1.5bil for the remaining shares it does not own. If it teams up with EPF, like their partnership for the privatisation of PLUS, it will cost just RM962mil.

Maybank IB also agreed that MAS management was doing a lot of work to reshape the carrier. From the fleet perspective, it was making the “right approach to rejuvenate its fleet; it currently has the oldest fleet age in the region and more crucially it has many obsolete aircraft (B737-400, first generation A330). We expect the fleet age to fall rapidly in 2012-13 as MAS inducts 15-17 new aircraft. This will greatly enhance operational efficiency and reduce cost substantially.''

The report said a successful airline was all about having an efficient cost structure that could withstand the ups and downs of the aviation cycle.

“We also believe when MAS has a young and trendy fleet, it is no longer handicapped against its peers and instances where MAS lags the peer group will be an issue of the past,'' the report said.

Maybank IB said re-listing could extract more value and assuming that MAS was a privately-owned company seeking a re-listing, it could extract better valuation by fixing its operations to be sustainably profitable and “we think this can be achieved by 2012; wait for the next aviation up-cycle; and float pieces of the group as stand-alone companies.”

“For example, MAS can public list Firefly first as there is a strong appetite for low-cost carriers. This can be repeated for MAS Engineering, MasKargo and its terminal services,'' the report said.

The benefits of breaking up MAS were there and that was also something Singapore Airlines had done years ago for SIA Engineering, Tiger Airways and SATS.